- The current acceleration of credit via central bank policies will likely produce a positive rate of real economic growth this year for most developed countries, but the structural distortions brought about by zero bound interest rates will limit that growth and induce serious risks in future years.
- Not suddenly, but over time, gradually higher rates of inflation should be the result of QE policies and zero bound yields that will likely continue for years to come.
- Focus on securities with shorter durations – bonds with maturities in the five-year range and stocks paying dividends that offer 3%–4% yields. In addition, real assets/commodities should occupy an increasing percentage of portfolios.
Despite having picked the Wrong Trade, once, you should listen when Bill Gross speaks. PIMCO’s latest reading summary. We advise to read the whole article here.
- Once interest rates inch close to zero and discounted future cash flows are elevated in price, it’s difficult to generate much more return if economic growth doesn’t follow.
- Equity markets should be dominated by dividend yields and the return of capital via share buybacks, as opposed to growth.
- In fixed income assets, we suggest that portfolios should avoid longer dated issues where inflation premiums dominate performance.